$10 billion in aid has been promised to Pakistan’s flood survivors but many questions remain

Pakistan received nearly $10 billion in funding pledges for post-flood recovery at a conference in Geneva this month, but 90% of this money will be in the form of loans, at a time when Pakistan is already facing a severe debt crisis and worsening socio-economic conditions

January 23, 2023 by Tanupriya Singh
Pakistan flood aid pledges
Lasbela, Balochistan. (Photo: World Food Programme) 

Over six months have passed since the beginning of the devastating floods in Pakistan, which killed over 1,700 people and injured scores more in 2022. Yet, not much has changed in the new year for the nearly one million people who still remain displaced in the provinces of Sindh and Balochistan. Up to four million children are living in proximity to contaminated and stagnant waters, even as cases of disease have risen dramatically.  

As several districts remain underwater, leaders from over 40 countries and international organizations gathered in Geneva for the International Conference on Climate Resilient Pakistan on January 9. Hosted by the government of Pakistan and the United Nations, the summit concluded with nearly $10 billion dollars in funding pledges for the flood-hit country. 

Islamabad had placed the post-flood rehabilitation and reconstruction costs at $16.3 billion, seeking half of the funds from the international community. Varying estimates have placed the total damage to Pakistan’s economy between $30 to $40 billion. 

Leading the pledges in Geneva was the Islamic Development Bank, with $4.2 billion to be provided over three years; followed by the World Bank with $2 billion; and the Asian Development Bank with $1.5 billion. Bilateral donors included Saudi Arabia ($1 billion), the US ($100 million), China ($100 million), the European Union, Canada, France, Qatar, and others. 

While the funds announced exceeded Pakistan’s target, a closer look at the pledges suggests cause for concern. Speaking at a press conference on January 11, Finance Minister Ishaq Dar stated that $8.7 billion, or nearly 90% of the pledges, were in the form of project loans. 

“The faster we can design and create feasibilities and impress them (the donors), the faster these pledges will materialize,” Dar said. Herein lies the problem—not only are the funds in the form of loans and not grants, but they have been announced as mere ‘pledges’ without guarantees of their disbursement. 

Fears that this funding might never reach Pakistan are not unfounded, given that wealthy countries of the Global North have consistently failed to deliver on their commitments to climate vulnerable countries in the Global South. 

In October, the UN had revised its urgent flood aid appeal for Pakistan to $816 million, a miniscule amount compared to the scale of devastation in the country. Moreover, less than half of the funds for the aid package have actually been provided. 

Not all of the pledges announced in Geneva include new funds. Of the $2 billion offered by the World Bank, $615 million has been repurposed from existing loan schemes that were facing implementation delays. The Bank had already approved recovery, rehabilitation, and reconstruction projects worth $1.3 billion in December 2022. 

The Pakistani government has not confirmed the conditions of the new loans, with Prime Minister Shehbaz Sharif stating that they expected the terms to be “lenient.” However, any additional loans will undoubtedly place a further burden on Pakistan, given that the country is already facing a severe debt crisis.  

A flood of debt

Before the floods, the International Monetary Fund (IMF) had estimated that Pakistan’s debt repayments would reach $22.5 billion, or 47% of government revenues, in 2023. The country is scheduled to pay $8.3 billion in external debt service payments between January and March alone.

These payments are due in the wake of a drastic decline in Pakistan’s foreign exchange reserves—as of January 6, the reserves held by the State Bank of Pakistan (SBP) had fallen to $4.3 billion, barely enough to pay for three weeks of crucial imports. This was reportedly following a repayment of $1.2 billion on loans taken from UAE-based banks. 

At the summit in Geneva, UN Secretary General António Guterres stated that Pakistan had been “doubly victimized by climate chaos” and “a morally bankrupt global financial system” that was “conceived by a group of rich countries” that “basically benefits rich countries.” 

“We need a new debt architecture and we need to make sure that debt relief is effectively provided by the system even to middle income countries that are on the verge of very difficult, very dramatic situations including suspending payments,” he added. 

The crisis in Pakistan has spiraled at a time when the country is undergoing its 23rd arrangement with the IMF. A 9th review by the Fund, which is necessary to clear a $1.1 billion tranche of funds from a $7 billion bailout programme, has been pending since September. 

The Fund is pushing Pakistan to implement austerity measures targeting subsidies in the agriculture and export sectors as well as reforms in the energy sector, including spending cuts. The country had already implemented a hike in fuel prices as well as removed subsidies in 2022 in an effort to get the IMF to resume stalled bailout funding. 

Shortly before being removed from office, ousted Prime Minister Imran Khan had announced a fuel subsidy, which the IMF stated was a deviation from the terms of the 2019 bailout agreement.  

“Fuel is used by the minority of the automobile elite, so a subsidy on fuel prices drained the exchequer,” Ahmad Rafay Alam, an environmental lawyer and activist, told Peoples Dispatch.  After the new government came into power, he added, “it had to face the backlash for the subsidy at a time when dollar values were rising against the Pakistani rupee. All of our imports became expensive.” And then the floods happened. 

Finance Minister Dar also met with IMF officials on the sidelines of the Geneva meeting. Dar later announced that the government had “identified some fiscal measures,” adding that “there will be no burden on the common man.”

Ensuring a recovery rooted in economic and climate justice

Socio-economic conditions in the country have steadily worsened, with low foreign exchange reserves contributing to a decline in the Pakistani rupee, which stood at 228.66 against the US dollar on January 17. 

By December, inflation had hit 24.5%, with the figure rising to 29% in rural areas. Major agricultural losses caused by the floods, coupled with factors including high food prices in the international market, also pushed food inflation to record levels in Pakistan. The government has also increased the prices of cooking essentials by up to 62%, claiming to “reduce the impact of untargeted subsidies”. 

Former Finance Minister Dr. Hafiz Pasha has warned that Pakistan might see an inflation rate of 70% if it defaults on its loan payments. Even if the country is able to secure the next IMF tranche, inflation could still stand to rise to 35% due to the accompanying conditionalities, he added. 

The impact of this will be drastic for the people of Pakistan, who are still trying to cope with the loss of lives and livelihoods caused by the floods. The UN Development Program has also stated that in addition to the 33 million people affected last year, another nine million people are at risk of being pushed into poverty. 

The country is now set to be saddled with even more debt, ostensibly in the name of recovery and rehabilitation for a “climate resilient” Pakistan—a Pakistan which is currently at the frontlines of the climate crisis, despite having contributed less than 1% of global carbon emissions.

Not only does debt divert funds necessary for public services and for tackling the climate crisis, climate-related events themselves create huge amounts of debt for poor countries.

Calculations by Debt Justice have shown that following the 2010 floods in Pakistan, the country was actually forced to borrow an additional amount—somewhere between $20 to $40 billion more than it would have had to otherwise. In the decade since, the total cost of both debt and interest payments is estimated to be between $36 billion and $71 billion.

Pakistan is not alone: of the 54 countries who are facing serious debt problems, 28 are among the world’s top 50 most climate-vulnerable countries. These countries are also home to 50% of the world’s poor

“Environmental catastrophes and financial crises have intersected for countries such as Mozambique, which was under an IMF program in 2018 when it got hit by a flood. It received aid, it got hit by another flood, and then it got a loan instead of aid,” Alam said. 

“The global financial institutional system, the Bretton Woods system, has failed because it is disgraceful for the international community to give loans for reconstruction work [to Pakistan], especially on a monsoon flood, the severity of which can be directly attributable to greenhouse gas emissions historically from the Global North,” he added.